Orange County FHA, VA & First Time Buyer Loan Information: September 2011

My goal is to provide valuable information for home buyers, both First Time Buyers and Move Up Buyers. This information will be about loan programs such as FHA ,VA, Conventional Fannie Mae and Freddie Mac, Reverse Mortgages, and even Portfolio Jumbo programs. I will also touch on tax advantages of homeownership, Rent vs. Own analysis, and any other aspect of loans and home ownership that will be of interest to Orange County home buyers and homeowners.

In Orange County, CA Veterans have a few different options when it comes time to purchase a home. They can either go with a $0 down standard VA loan, or the CalVet program, which also has options for $0 down. But which is better? It can depend on several factors, including current interest rates and the purchase price of the home.

CalVet and the Contract of Sale

The CalVet loan program uses a Contract of Sale as the financing instrument, meaning CalVet purchases the property for the veteran at the close of escrow, and the sells the property to the veteran using a Contract of Sale. When the mortgage is paid off, ownership is transferred to the Veteran using a Grant Deed. By doing this, CalVet is able to offer group insurance rates, which for some properties can be beneficial. CalVet will lend on mobile homes in parks, which are typically difficult to get financing on. CalVet also requires that the Veteran remain in the home and not turn it into a rental. Although CalVet will issue a short term waiver on occupancy, this is an important factor to consider.

The VA loan limit for 100% financing in Orange County for 2011 is $700,000. This means a Veteran can purchase a home in Irvine for $700,000 with Zero Down payment, and of course, no monthly Mortgage Insurance. It is also possible to purchase a home valued above the 100% financing limit. The Veteran would need a down payment equal to 25% of the difference between the purchase price and the 100% limit. For example, if a Veteran is purchasing a home in Irvine for $800,000, then a down payment of $25,000 would be required. (25% of $800,000 less $700,000 = $25,000). That works out to a down payment of only 3.1%. CalVet will lend up to a limit of $521,250. In Orange County that will work for some properties, but not all. The $521,250 limit does allow for higher loan amounts in Riverside and San Bernardino counties, where the 100% financing limit is $417,000. So for some Veterans wishing to purchase a $500,000 home in the Inland Empire with $0 down payment, CalVet may be their best option. But in Orange County, at least in 2011 while the VA 100% financing limit is at $700,000, VA will offer the most flexibility.

CalVet Interest Rates vs VA Interest Rates

The CalVet loan program is funded through Bond Financing. Because of this, there are times when the CalVet program offers below market interest rates. But there are also times when CalVet offers above market interest rates. This is one of those times. Over the past three years VA mortgage rates have been very low, while CalVet rates have remained above market. Currently, as of September 28, 2011, CalVet interest rates range from 5.9% APR to 6.36% APR. The spread in interest rates between the CalVet and the standard VA loan program will be the primary reason why most Veterans in Orange County choose the VA program over the CalVet program.